RISI - Latin American Conference

Trends and Challenges in the Brazilian Tissue Market

RICARDO BOTELHO – SANTHER CEO

17 August 2016

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Agenda

Introduction

Sectorial Conjuncture : Summary

Santher Overview

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Introduction1

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Gross Sales:  R $ 1.75 billion. 

Owner of highly recognized brands , positioned to capture the "premiumisation "  in the Brazilian market. 

The Bragança Paulista’s tissue plant is one of the 15thlargest in the world. Santher is now constructing the most advanced distribution center in Latin America at this unit. 

2.112 employees. 635 outsourced

Established in 1938, with over 77 years of experience , Santher is one of the national leaders in the Brazilian market for tissue and personal care.

Three business units : Consumer , Professional and Specialty Papers.

Introduction

SANTHER ‐ One of the main Brazilian companies in the tissue industry and personal care

Source: Santher

4 plants

2 distribution centers

1 headquarter

• DC ‐ Alhandra

Location

Paraíba (NE)Paraíba (NE)

• Guaíba Unit

Rio Grande do Sul (S)Rio Grande do Sul (S)

Governador ValadaresUnit

Minas Gerais (SE)Minas Gerais (SE)

São Paulo (SE)São Paulo (SE)

Industrial and logistics large complex with versatile 

plants for customized production.

• Headquarter (Capital)• Penha Unit (Capital)• Bragança Paulista Unit• Bragança Paulista new DC

Santher ‐ general profile  

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• PERSONAL - purchase volume leading brand in Brazilian households

• SNOB – Kitchen Towels category Top Of Mind

SANTHER: Three business units and leading brands 

Traditional and recognized brands in their respective sectors in Brazil

Consumer Unit

77%

9%14%

Specialty Papers

• Flexible packaging : food , fruit, sachets , bags, cigarettes and fast food 

• 33% of Brazilian market share 

• US$ 30 MM export

Professional ‐ AFH

• Food, office , education, industry, health, tourism and leisure 

• 20% of Brazilian market share

Source: Santher; Super varejo Trade Magazine and Kantar World Panel ‐ 2016 Confidential

Personal Care Tissue

Importance %

Bragança Paulista’s new  distribution center – SP State Aerial view ‐ construction in progress  

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Bragança Paulista’s new  distribution center – SP State Line Out ( Palletizing ) ‐ Robots

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The latest technology. It will be the most modern distribution center in Latin America.

Investments • R$ 90 million - Construction and Line Out automation

Project objectives

Construction of a new distribution center in Bragança Paulista beside Santher’s main plant

Replacing the current Arujá’s DC by Bragança Paulista’s DC;

Elimination of all products transportation between Bragança Paulista’s plant and Arujá’s DC;

Logistic efficiency (service and security) improved by grater automation and also logistics processes and customer service enhancement;

Significant change in firefighting technology;

Logistics cost reduction.

Source: Santher

TechnicalFeatures 

Solution based on automatic cars and elevators

Storage Area - 11.000 m;

Stocks high densification;

Positioning capacity increased;

Automated input and output operation;

Automatic transport between factory and warehouse (elevators);

Line Out - Palletizing automated by robots.

.

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Palletizing (Line Out) automated by robots

Sectorial Conjuncture : Summary2

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In 2016 the Brazilian toilet paper segment presents a production retraction:  ‐ 1.3%vs. 2015 ... 

... but, in short‐term (May 2016), recovers due to Two Ply Toilet Paper growth

%

2

Source: Anguti Statistic – Montlhly Report June 2016 Confidential

SANITARY PAPERS PRODUCTION EVOLUTION – BRAZILtons

Economia

Mar Apr May Jun Jul Aug Sep Oct Nov DecFebJan

24

1716

11

8 87

5 54

0.1

Wide difference among worldwide countries in per capita consumption 

Culture, economic growth (GDP) and country development (urbanization) impacts thetoilet paper consumption.

Toilet paper share is expected to grow, considering the total paper market demand,due to the increase of in‐development countries' demand.

per capita consumption of sanitary paper

kg / inhabitant / year

4,8x

ConfidentialSource: Pöyry

55%

68%

82%89%

49%

68%

95% 95%

81%

92%

97% 97%

Brazilian tissue and personal care categories still have growth potential compared to other countries

Penetration ‐ Kitcehen towels Penetration ‐ Diapers Penetration ‐ Sanitary Napkins

Source: Nielsen; Non‐Wovens Industry 2013/2014 Confidential

Economia Bra

Given the Brazilian economic crisis , there is a consumption retraction and a change in purchase habitsBrazilian economy is slowing 

Source: Santher; BACEN; Ipeadata; IBGE; Nielsen Retail Index; Nielsen Global Survey of Consumer Confidence & Spending Intentions, Q1 2016 Confidential

Q vs PY Q vs PQ

Situation impacts the Brazilian’s income

Source: Santher; BACEN; Ipeadata; IBGE; Nielsen Retail Index; Nielsen Global Survey of Consumer Confidence & Spending Intentions, Q1 2016

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Given the Brazilian economic crisis , there is a consumption retraction and a change in purchase habits

Consumer loses confidence 

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Given the Brazilian economic crisis , there is a consumption retraction and a change in purchase habits

Source: Santher; BACEN; Ipeadata; IBGE; Nielsen Retail Index; Nielsen Global Survey of Consumer Confidence & Spending Intentions, Q1 2016

Brazilian Consumers usually changes the consumption dynamic

Economia

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Shopping channel change = > C&C grows 

Population increase the number of store visiting but decrease the spent per occasion

Trade Down: change for value for money brands

Cash & Carry*

56% 58% 63%

44% 42% 37%

2014 2015 2016

Two Ply

45% 50% 53%

55% 50% 47%

2014 2015 2016

Sanitary Napkins

Search for multipacks increase

Share of Brands – Value (%)

Leaders

Vice Leadears

Others

Toilet Paper

Source: Nielsen |Retail Index &  Homescan ‐ base: 66 Product Categories

Despite the crisis, the toilet paper category is trading up from one ply to two ply

Consumer continues to increase Two Ply consumption 

Economia Bra

2007 = 100

Source:BACEN; IBGE; Nielsen Retail Index Confidential

Source: Nielsen | Retail Index. Brasil ‐ INA | 100%  Toilet Paper

Two ply toilet paper gain importance in toilet paper market 

IMPORTANCE OF SEGMENTS (% )

VOLUME VALUE

3 PLY 1 PLY 2 PLY

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Santher Overview3

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Toilet Paper Market ‐ R$ 4,6 Bi

Source: Nielsen Retail Index  ‐ Quantitative research 2015 ‐ IPSOS 

PERSONAL is the Top of Mind brand in Toilet Paper Market ( 41%).

High brandawareness (94%)

Superior purchasepreference

Strong brand INNOVATION Logistical efficiency

Best value for moneybrand in the category

Full Promopack Portfolio

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Diapers & Baby Wipes Market ‐ R$ 5 bi

Full Multipacks Portfolio

PERSONAL is the Top of Mind brand in Toilet Paper Market ( 41%).

CAGR volume: 11‐15 : 16,4%

Above market growth (3,3%)

4ª Brand in Braziland

2ª in Rio de Janeiro

Best value for money in Tier 3

Strong brand INNOVATION Logistical efficiency

ConfidentialSource: Nielsen Retail Index  ‐ Quantitative research 2015 ‐ IPSOS 

Feminine Care Market ‐ R$ 2 bi

INNOVATION Full Promopack PortfolioBuild trust Brand

SYM has 42 % of household penetration in 

Minas Gerais State 

In this same area has a prominent position with 23.6 % market share

SYM grows 17% in volume as the market drops 5% 

(2014 x 2015) 

Best value for money  in the 

segment 

ConfidentialSource: Nielsen Retail Index  ‐ Quantitative research 2015 ‐ IPSOS 

Kitchen Towels Market ‐ R$ 0,5 bi

Full Portifólio

SNOB is the market leader 

Top of Mind in towels and napkins.

Quality reference

Premium Price

Strong brand INNOVATION

ConfidentialSource: Nielsen Retail Index  ‐ Quantitative research 2015 ‐ IPSOS 

SANTHER – brands and products positioning

Focus on markets in the “premiumisation” process : Diapers and Two Ply Toilet Paper.

Professional and Specialty Papers strengthening.

Brands with great proximity to the Brazilian consumer. 

Premium brands portfolio with good perception of value for money by the consumer.

Source: Santher

Competitive advantage through constant innovation and product differentiation.

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Growth in high value markets : Sanitary Napkins and Feminine Panty Liners.